It was apparent that Swedes would not be sorry to see the end of 1993. It was the third consecutive year of the country’s deepest economic slump in more than 50 years. By many measures the crisis was worse in 1993 than in either of the two previous years, although there were firm signs that the bottom of the cycle had been reached by year’s end.

There were two main problems: rapidly rising unemployment and a budget deficit that in relative terms was the largest in the Western world. Unemployment--including those involved in training schemes-- reached 13% in 1993, a level that would have been unthinkable even two years earlier. It cruelly exposed the famed generosity of the Swedish welfare state and the centre-right coalition government’s inability to fund it in a harsh economic climate.

The crisis forced the government to abandon its tax-cutting plans and switch its emphasis to cutting costs. At the centre of the program was a plan to reduce the budget by 81 billion kronor over five years. The government ruled out any attempt to stimulate the economy, such as a general cut in the value-added tax, on the grounds that the country could not afford it. There were still doubts about whether the government was doing enough to come to grips with the difficulties, and this, together with the sheer size of Sweden’s borrowing requirement, weighed on the financial markets for much of the year. The result was a gradual weakening of the Swedish krona, which proved highly beneficial for the country’s big multinational exporters. However, they were unable to exploit fully their newfound competitiveness because of the continuing recession in many of Sweden’s main European markets, particularly Germany. In December the automaker Volvo A.B., yielding to intense pressure from share holders, canceled plans to merge its car and truck operations with Renault S.A. of France.

The economic problems made 1993 a difficult year for the four-party coalition government led by Prime Minister Carl Bildt. In the spring the coalition’s survival was seriously threatened when New Democracy, a populist party outside the government, looked set to vote against it in a vote of confidence triggered by a row over the budget. In the end the crisis was averted following concessions from the government that brought tacit support for its policies from New Democracy for the rest of the year.

Sweden began negotiations to join the European Community (EC) in February, taking its place alongside Norway, Finland, and Austria in the enlargement discussions. Unlike some of its fellow applicants, Sweden chose not to strike an aggressive stance on any particular issue, although it was clear it was looking for sympathetic treatment in some areas, such as agriculture and alcohol policy. (Like Norway and Finland, Sweden had for many years operated an alcohol monopoly it wanted to retain on health grounds.) Membership in the EC was backed by all the major political parties, as well as the vast majority of business leaders.

Sweden had already signed up for the European Economic Area, the free-trade agreement between the EC and the seven-nation European Free Trade Association that was scheduled to take effect some time in 1994. The country was then to join the EC in January 1995, but the timetable would be tight. The negotiations had to be completed early in 1994, and a referendum had to be held specifically on the membership issue. Political leaders would have to work hard if they were going to persuade a skeptical population that the EC was worth joining. Opinion polls in 1993 showed a solid majority against membership.

Sweden’s application to join the EC reflected a country in transition from semi-isolation on the fringes of Europe to full integration in it. The sense of uncertainty this had caused was enhanced by other changes within the country, such as the scaling back of the welfare state and the rise in unemployment. Some Swedes unfairly confused the two, blaming the EC integration process for cuts in services. Unemployment also brought with it increased social and racial tensions in a country with little experience of either.

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